Microeconomics - Practice Test 03: Supply and Demand

The accompanying supply and demand graph represents a hypothetical market for spaghetti pasta. Demonstrate how an increase in the price of penne, a different type of pasta, and a decrease in the price of meatballs will affect the supply and demand of spaghetti pasta. Assume that producers of spaghetti pasta do not also produce penne.

Demand increases (Move "Demand" up/to the right)

The accompanying graph represents a hypothetical market for luxury automobiles. Suppose that a major luxury car producer exits the market in order to produce more economy cars. At the same time, a new tax law means that many tax payers will receive large refunds this year. According to a marketing firm, the result is a higher quantity of luxury cars selling at higher prices. Manipulate the graph to demonstrate what must be happening to supply and demand. a. Market for Luxury Cars (graph)

a. "D" increases all the way to the right. "S" moves one over to the left

The accompanying graph represents the supply of printer ink cartridges. The current price of ink (per cartridge) is $20 and indicated by the point on the supply curve. Suppose the price of cartridges increases to $24. Illustrate on the graph how the market for Ink Cartridges changes. a. Market for Ink Cartridges (graph)

a. Move the point along the line to $24 (7,24)

For each example listed, decide if the good is a normal good or an inferior good. Make sure you answer from the perspective of the individual or individuals doing the buying or consuming. a. Billy's mom increases his weekly allowance by $5. As a result, Billy increases the number of apps he downloads on his smartphone. Smartphone apps are ___ good. b. Susan gets a 15 percent performance bonus at work. She can finally stop eating so many frozen pizzas and eat something more tasty. Frozen pizzas are ___ good. c. Mike is an appliance salesman. Refrigerator sales in his store have fallen and so has his commission. Mike decides to switch from name brand cereal to generic cereal. Generic cereal is ___ good. d. Hair stylist Molly loses a few of her clients. Molly cuts back on the number of smoothies she buys during the week. Smoothies are ___ good.

a. a normal b. an inferior c. an inferior d. a normal

Indicate whether each scenario involves a shift in the supply curve or movement along the supply curve. a. Americans sell their gold and silver jewelry as a result of rising prices. b. A national consumer products company produces less of its premium quality soap as a result of lower soap prices. c. Amplitude decides to join the smartphone market. d. After discovering that flash-steaming tuna before using mechanical processes to extract meat removes more tuna flesh, more cans of tuna arrive on the shelves at all major grocers.

a. movement b. movement c. shift d. shift

The demand curve a. depicts the relationship between production costs and output. b. is a graphical representation of the relationship between price and quantity demanded. c. determines equilibrium price in a market. d. is a graphical representation of the relationship between price and quantity supplied.

b. is a graphical representation of the relationship between price and quantity demanded.

The figure shows the supply and demand for online music. Suppose that an economic downturn decreases household wealth and erodes consumer confidence. Move the supply and/or demand curves to reflect the primary effect this would have on the market for online music. You can assume that online music is a normal good. Also select the end result of equilibrium price and quantity. a. (Graph) b. Equilibrium price -remains constant. -change is ambigous. -increases. -decreases. c. Equilibrium quantity -change is ambiguous. -decreases. -remains constant. -increases.

a. "Demand" moves to the left/down b. decreases c. decreases

The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market. a. Market for Ethanol (graph) b. Equilibrium price -remains constant. -decreases. -increases. -may increase or decrease, but it is impossible to know for sure. c. Equilibrium quantity -increases. -decreases. -may increase or decrease, but it is impossible to know for sure. -remains constant.

a. "S" shifts to the left b. increases c. decreases

Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. The accompanying graph depicts a market for electric vehicles. Demonstrate the effect of a reduction in the price of lithium-ion batteries by adjusting the accompanying diagram. a. Market for Electric Vehicles (graph) b. Equilibrium price -increases. -may increase or decrease, but it is impossible to now for sure. -decreases. -does not change c. Equilibrium quantity -may increase or decrease, but it is impossible to now for sure. -decreases. -increases. -does not change.

a. "S" shifts to the right b. decreases c. increases

The demand schedule for chicken feet, a dim sum delicacy served at some Chinese restaurants, is shown in the table. Although some people find the texture strange, others have developed a taste for it. a. How many more chicken feet were demanded in 2018, at a price of $1.25 a pound, than in 2008? b. Based on the demand schedule, you conclude -there was movement along the demand curve to the left. -the demand curve shifted to the right. -there was movement along the demand curve to the right. -the demand curve shifted to the left.

a. 6.7 b. the demand curve shifted to the right.

During the Obama administration, the development of low-cost batteries for electric cars received large amounts of federal funding in terms of subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero-emissions electric vehicles where there is an upward-sloping supply curve and a downward-sloping demand curve. a. Which direction will demand and supply shift? -Demand will shift right and supply will shift left. -Both curves will shift left. -Demand will shift left and supply will shift right. -Both curves will shift right. b. What will happen to the equilibrium price? -The price increases. -The price decreases. -The change is ambiguous. -The price remains constant. c. What will happen to the equilibrium quantity? -The quantity decreases. -The quantity remains constant. -The change is ambiguous. -The quantity increases.

a. Both curves will shift right. b. The change is ambiguous. c. The quantity increases.

Suppose that there has been a sudden influx of refugees in the small town of Dallon, leading to a doubling of the local population. The accompanying graph depicts Dallon's market for food. Adjust the graph to show the immediate impact that this rise in population has on the food market. Then determine what happens to equilibrium price and quantity. a. Market for food (graph) b. Equilibrium price -remains constant. -increases. -decreases. -may increase or decrease, but it is impossible to now for sure. c. Equilibrium quantity -remains constant. -may increase or decrease, but it is impossible to now for sure. -decreases. -increases.

a. Demand increases (Move "D" to the right) b. increases c. increases

Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks. a. Market for Bricks (graph) b. Equilibrium price -remains constant. -may increase or decrease, but it is impossible to know for sure. -increases. -decreases. c. Equilibrium quantity -may increase or decrease, but it is impossible to know for sure. -remains constant. -decreases. -increases.

a. Demand increases (Move "Demand" up/to the right) b. increases. c. increases

The table contains information on the price per month and the monthly demand and supply of online music streaming subscriptions. a. What is the quantity demanded at $10.90? b. What is the quantity supplied at $10.90 c. At what price is the quantity supplied equal to 220,000?

a. Quantity demanded is >200< thousand subscriptions b. Quantity supplied is >320< thousand subscriptions c. $10.50

Andrew, a college student, loves drinking coffee late at night to study for exams. Having no income, he is used to buying cheap, bad-tasting coffee, such as Beanlightened, that he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year, and he decides he has had enough bad-tasting coffee. He ends up buying coffee daily from Starbucks, even though it costs significantly more than Beanlightened. a. Andrew's demand for Starbucks coffee changed as a result of -a change in a related good or service. -a change in the number of consumers. -a change in income. -a change in technology. -a change in expectations. b. Beanlightened coffee is for Andrew a(n) c. In economic terms, Starbucks coffee is for Andrew a(n)

a. a change in income. b. inferior good c. normal good